Why start a blog about technology strategies? Well, you’re supposed to “write about what you know”…and after spending more than 12 years as an electronics designer and 19 years as a sell side high tech equities analyst, this is what I know.
The tenure of the average sell side high tech analyst is almost always less than three years: it seems that you are either so good you get hired by a hedge fund, or so bad you get the boot pretty fast. That means that almost nobody has followed the sector, without interruption, for nearly two decades. That baseline gives you insights that go much deeper than whether buying Facebook at the IPO would be a good idea or not. In my over 30 years in technology, I have worked on multiple technologies, covered many companies, in a wide variety of tech related businesses, and I have read the business plans of (literally) hundreds more. You learn things.
Every tech analyst starts out being a wild eyed optimist. If you are lucky — as I was– you start during a powerful bull market which means you end up making some good investment recommendations, despite your naïveté. If you are really lucky — as I also was — just when you start getting complacent about being a good analyst the market goes to hell and you understand the difference between good luck and good research. Nothing makes you realize how little you know about the stock market more than seeing all of your stocks go down at once. This phase often lasts two or three years, or more or less the entire career of most sell side tech analysts.
The second phase of my career was the ‘dot-com’ bubble – a phase of complete, and public, insanity in the capital markets. I would say a unique phase, but it seems that we endure market bubbles of one kind or another every few years now, which says something but I am not sure what. I had the combined good fortune and bad fortune to be at my most productive during the dot-com era. I realized it was madness, and while there is something empowering in believing you are the only sane person in the room, at the same time it is very, very stressful. In retrospect, despite the mistakes I made, it was a powerful experience. It showed me much about how readily money can corrupt “honest” people, how the media is a vapid follower of the crowd, and how little people actually understand about technology.
I would say that the final phase of my Bay Street career made me unduly cynical. Except that a) I was pretty cynical even before this phase, and b) ‘unduly’ suggests that I am more cynical than I needed to be, which isn’t true at all.
Since the bubble imploded in 2001, the same investors who were led to the slaughter by large brokerages during the “dot-com” era actually increased their business with them. Having paid trivial fines for their malfeasance, more and more brokers (and news services, industry research houses, and others) ‘off-shored’ research to low cost centers, because they understood that a veneer of quality was all you needed to keep the fees and commissions flowing. Even more incredibly, “growth stocks” that had stopped growing saw their valuations increase relative to earnings prospects.
I have spent decades trying to learn how technologies worked and how businesses worked; which strategies were doomed to failure regardless of execution and which ones stood a chance; and which technologies had high barriers to entry and which did not. In recent years, I saw Bay Street and Wall Street analysts spend most of their time guessing whether margins were going up, down, or sideways in quarterly guidance – and that seemed to be more important than understanding the outlook for the underlying business.
Over the years I have developed a number of rules of thumb, or principles, which did not particularly allow me to predict a company’s quarterly margins or short term share price. But they did allow me to figure out how a company’s actual business was going to do over time. Some of these are not necessarily investment related, and so I will caution readers not to use this blog as a source of stock advice. However, these observations may be of some interest to tech company investors, managers, and especially employees trying to figure out where their company is headed. I hope to discuss those principles over time using ‘real world’ examples where possible. I also hope to resurrect the ‘Geek’s Reading List’ a collection of links and commentary which was widely distributed throughout the tech and investment community.
Thanks for reading this. All comments are welcome.